Switzerland retained its top place this year, followed by the Netherlands and Sweden. China climbed to 17th from 22nd place last year, according to the ranking.
The United States slid from 4th in 2017 to 6th, though in absolute terms, the country remained the top contributor in key innovation inputs and outputs.
The United States came second after China in the volume of researchers, patents and scientific and technical publications, according to the ranking.
WIPO Director General Francis Gurry said that China's rapid rise heralded "the arrival of multipolar innovation," reflecting "a strategic direction set from the top leadership to developing world-class capacity in innovation and to moving the structural basis of the economy to more knowledge-intensive industries that rely on innovation to maintain competitive advantage."
Sean Randolph, the senior director of the Bay Area Council Economic Institute, told Xinhua that China has tremendous innovative capacity, and is moving quickly up the ladder.
Switzerland, Luxembourg and China ranked top three in terms of translating investments in education, research and R&D expenditures into high-quality innovation outputs, according to the ranking.
"There's great energy in the entrepreneurial community and growing access to venture capital and the quality of China's scientific research is also increasing," said Randolph.
A survey of "top science and technology clusters" around the world put the areas around Tokyo-Yokohama and Shenzhen-Hong Kong atop the list, while the United States had the greatest number of hotspots with 26.
The top 10 innovative economies also include Britain, Singapore, Finland, Denmark, Germany and Ireland.
GII ranked 126 economies based on 80 indicators, ranging from intellectual property filing rates to mobile-application creation, education spending and scientific and technical publications.